As foreign investors own about 18-20 per cent of the Indian market, the INR/USD value impacts stock market investors. Forex experts say the buoyancy in the dollar index seems to be petering out.
“July trends show FII outflows from the equity markets have slowed during the first fortnight, while Indian markets have managed to fetch some gains during the last 30 days, even as pain persists in global equities. Perhaps a change in trend indicates FIIs are having a change of heart for India,” said Hitesh Jain, Senior Vice President – Institutional Research, YES Securities.
He said all these developments allude to lesser downward pressure on the Indian rupee, with the USD-INR rate due for some mean reversion or possibly a consolidation around the 79 mark.
Since the beginning of 2022, the Indian rupee has become weaker by around 8 per cent against the dollar. Reports predict the domestic currency hitting the 82 per dollar mark this quarter amid the flight to safety in turbulent times.
Adding pressure on the rupee, foreign investors have sold domestic stocks worth nearly $30 billion so far in 2022.
Sugandha Sachdeva of Broking says the Indian rupee is still reeling under pressure even as there has been a broad rally in risk assets and the dollar index has also softened from its multi-year highs. The recent bout of weakness is caused by strong dollar demand from oil importers with crude oil prices holding steady, she said.
Securities suggests avoiding companies that rely heavily on imports and also those with a massive foreign currency debt. “Under such a scenario, companies with good bargaining power and a huge export market tend to do well,” it said.
In the meantime, the RBI has taken a series of interventions including aggressive buying and selling swaps in the spot and forward market.
“We sense that the worst is priced in the currency, with the value likely to be peaking around 80.5-81 against the greenback. We say this because there is a growing indication that inflation across the globe has peaked given the wide retreat in food prices, oil and other industrial commodities,” Jain said.
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